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The returns to education: a review of the empirical macro-economic literature

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  • Barbara Sianesi

    () (Institute for Fiscal Studies and Institute for Fiscal Studies)

Abstract

The idea of positive educational externalities is that the benefits of individually acquired education may not be restricted to the individual but might spill over to others as well, accruing at higher aggregation levels, in particular at the macro-economic one. We offer an extensive summary and a critical discussion of the empirical literature on the impact of human capital on macro- economic performance, with a particular focus on UK policy. Key findings include: (1) Taking the studies as a whole, there is compelling evidence that human capital increases productivity. Although there is an important theoretical distinction between the augmented neo-classical approach and the new growth theories, the empirical literature is still largely divided on whether the stock of education affects the long-run level or growth rate of the economy. A one-year increase in average education is found to raise the level of output per capita by between 3 and 6 percent according to augmented neo-classical specifications, while it would lead to an over 1 percentage point faster growth according to estimates from the new-growth theories. (2) Over the short-run planning horizon (4 years) the empirical estimates of the change in GDP for a given increase in the human capital stock are of similar orders of magnitude in the two approaches. (3) The impact of increases at different levels of edu-cation appear to depend on the level of a country's development, with tertiary/higher education being the most important for growth in OECD countries. (4) Education is found to yield additional indirect benefits to growth (in par-ticular, by stimulating physical capital investments and technological development and adoption). More preliminary evidence seems to indicate that type, quality and efficiency of education all matter for growth. The most pressing methodological problems are the measurement of human capital; systematic differences in the coefficient of education across countries (in particular between developing and developed countries) and reverse causality. We also make recommendations for future research priorities.

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  • Barbara Sianesi, 2002. "The returns to education: a review of the empirical macro-economic literature," IFS Working Papers W02/05, Institute for Fiscal Studies.
  • Handle: RePEc:ifs:ifsewp:02/05
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    References listed on IDEAS

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    Cited by:

    1. Jean-Louis ARCAND & Béatrice D'HOMBRES, 2002. "Explaining the Negative Coefficient Associated with Human Capital in Augmented Solow Growth Regressions," Working Papers 200227, CERDI.
    2. Paul Gregg & Emma Tominey, 2004. "The Wage Scar from Youth Unemployment," The Centre for Market and Public Organisation 04/097, Department of Economics, University of Bristol, UK.
    3. Sergio Scicchitano, 2010. "Complementarity between heterogeneous human capital and R&D: can job-training avoid low development traps?," Empirica, Springer;Austrian Institute for Economic Research;Austrian Economic Association, vol. 37(4), pages 361-380, November.
    4. Channing Arndt & Sam Jones & Finn Tarp, 2006. "Aid and Development: The Mozambican Case," Discussion Papers 06-13, University of Copenhagen. Department of Economics.
    5. Gustavo A. Crespi & Aldo Geuna & Lionel J. J. Nesta, 2006. "Labour Mobility of Academic Inventors. Career Decision and Knowledge Transfer," SPRU Working Paper Series 139, SPRU - Science and Technology Policy Research, University of Sussex.
    6. Michael Landesmann & Sebastian Leitner & Robert Stehrer & Terry Ward, 2009. "Skills and Industrial Competitiveness," wiiw Research Reports 356, The Vienna Institute for International Economic Studies, wiiw.
    7. Cheryl Gray & Tracey Lane & Aristomene Varoudakis, 2007. "Fiscal Policy and Economic Growth : Lessons for Eastern Europe and Central Asia," World Bank Publications, The World Bank, number 6883, August.
    8. Raj, Madhusudan, 2008. "State of Elementary Education in Public Schools of Gujarat: A Study of Schools Run by the Bharuch Municipality," MPRA Paper 10581, University Library of Munich, Germany.
    9. Joachim Ragnitz & Stefan Eichler & Beate Henschel & Harald Lehmann & Carsten Pohl & Lutz Schneider & Helmut Seitz & Marcel Thum, 2007. "Die demographische Entwicklung in Ostdeutschland : Gutachten im Auftrag des Bundesministeriums für Wirtschaft und Technologie," ifo Dresden Studien, ifo Institute - Leibniz Institute for Economic Research at the University of Munich, number 41, October.
    10. Juan David Barón & Gerson Javier pérez & Peter Rowland, 2004. "A Regional Economic Policy for Colombia," REVISTA DE ECONOMÍA DEL ROSARIO, UNIVERSIDAD DEL ROSARIO, December.
    11. Grant Johnston, 2004. "Healthy, wealthy and wise? A review of the wider benefits of education," Treasury Working Paper Series 04/04, New Zealand Treasury.
    12. Tubadji, Annie & Nijkamp, Peter, 2016. "Impact of Intangible Cultural Capital on Regional Economic Development: A Study on Culture-Based Development in Greece," Journal of Regional Analysis and Policy, Mid-Continent Regional Science Association, vol. 46(1).
    13. Milenko Popovic, 2006. "Capital Augmenting And Labor Augmenting Approach In Measuring Contribution Of Human Capital And Education To Economic Growth," Montenegrin Journal of Economics, Economic Laboratory for Transition Research (ELIT), vol. 2(4), pages 71-108.
    14. repec:ebl:ecbull:v:15:y:2007:i:2:p:1-11 is not listed on IDEAS
    15. Goetz, Stephan J. & Rupasingha, Anil, 2004. "The Returns to Education in Rural Areas," The Review of Regional Studies, Southern Regional Science Association, vol. 34(3), pages 245-259.
    16. Pereira, João & St. Aubyn, Miguel, 2009. "What level of education matters most for growth?: Evidence from Portugal," Economics of Education Review, Elsevier, vol. 28(1), pages 67-73, February.
    17. R. Nahuis & H.M. de Groot, 2003. "Rising Skills Premia. You ain't seen nothing yet," Working Papers 03-02, Utrecht School of Economics.
    18. Pina, Alvaro Manuel & St. Aubyn, Miguel, 2005. "Comparing macroeconomic returns on human and public capital: An empirical analysis of the Portuguese case (1960-2001)," Journal of Policy Modeling, Elsevier, vol. 27(5), pages 585-598, July.
    19. Alexander Muravyev, 2006. "Human Capital Externalities: Evidence from the Transition Economy of Russia," Discussion Papers of DIW Berlin 629, DIW Berlin, German Institute for Economic Research.
    20. Mary Canning & Martin Godfrey & Dorota Holzer-Zelazewska, 2007. "Higher Education Financing in the New EU Member States : Leveling the Playing Field," World Bank Publications, The World Bank, number 6740, August.
    21. repec:use:tkiwps:022 is not listed on IDEAS
    22. Michael Peneder, 2007. "A sectoral taxonomy of educational intensity," Empirica, Springer;Austrian Institute for Economic Research;Austrian Economic Association, vol. 34(3), pages 189-212, July.
    23. repec:ilo:ilowps:413106 is not listed on IDEAS
    24. Paul Bingley & Yu Zhu & Ian Walker, 2005. "Education, Work and Wages in the UK," German Economic Review, Verein für Socialpolitik, vol. 6(3), pages 395-414, August.
    25. Gustavo Crespi & Aldo Geuna & Lionel Nesta, 2007. "The mobility of university inventors in Europe," The Journal of Technology Transfer, Springer, vol. 32(3), pages 195-215, June.

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